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Working Papers

The Spatial Distribution of Affordable Home Loan Purchases in Major Metropolitan Areas: Documentation and Analysis

Working paper #333
Joseph Gyourko and Dapeng Hu

Analysis of twenty large metropolitan areas shows that the spatial distribution of purchases made by Fannie Mae and Freddie Mac in support of the Low and Moderate- Income Housing Goal does not match the spatial distribution of low- and moderate-income households that apply for or take out a mortgage. Regression analysis then finds that both neighborhood traits and risk factors of goal-eligible applicants (or borrowers) are correlated with the degree of spatial mismatch between loan purchase activity and goal-eligible applications and originations. The most robust finding is consistent with a policy of the two GSEs targeting the purchase of Low and Moderate Income Housing Goal loans in relatively high income tracts. That is, the higher is a census tract’s income relative to the median for its metropolitan area, the higher is the GSE purchase rate in the tract relative to that for the overall metropolitan area. Race effects are somewhat less robust across metropolitan areas, with the bulk of the evidence suggesting that suburban, not central city, tracts with relatively high concentrations of African-American households are more likely to have relatively low GSE purchase rates of Low and Moderate-Income Housing Goal loans. Finally, our analysis finds that a larger FHA presence is associated with a lower origination rate of conventional loans. We suspect that a stronger FHA presence increases the perceived risk of a neighborhood in most metropolitan areas, as FHA loans have a higher default risk.

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